Everyone Needs a TFSA

What is a TFSA?
It is a Tax Free Savings Account – in other words it is an investment account that doesn’t have taxes charged on the gains (the money you make). This means any investment income made above the original sum is yours – rather than yours and the tax man’s. Each year you can contribute $5,500 and part or the whole amount can be taken out at anytime so it is an exceptionally flexible savings account.

Gains on investments are taxed at all different rates based on your income and the type of investment. Take a look at your paycheque – the tax is significant. You are likely paying that tax again on your investment gains.

Three Things To Do Right Now
1. Open a TFSA at any Canadian financial institution
2. Maximize your contribution (check the CRA website for your limit)
3. Chose a few broad index funds to invest in

The flexibility of the TFSA combined with tax avoidance makes it one of the best bets for savings and it is very flexible! The table below shows the key differences between a TFSA and a regular account.

Scenario TFSA Regular savings account
Contribution dollars After tax After tax
Tax treatments of gains No further tax Tax on the gain (sell price – purchase price)
Types of investments allowed Any bought through a financial institution Anything, including traditional financial investments or a home
Maximum contribution $$5,500 per year Sky’s the limit
Redemption The money can be taken out any time The money can be taken out any time
Repaying Replacing money in the account can only happen once a year Money taken out can be replaced anytime

Want to keep learning about a TFSA? Excellent. Start with the Government of Canada website.

Save Smartly!

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